Reed Smith Client Alerts

The National Labor Relations Board (“NLRB”) overturned decades-old precedent by vastly expanding its definition of “joint employer,” upending established federal labor law and creating tremendous uncertainty for companies. Under the standard announced in Browning-Ferris Industries (“BFI”), the NLRB will no longer require direct and immediate control over terms and conditions of employment to find a joint-employer status. Rather, the right to indirectly control terms and conditions of employment, even if never exercised, is sufficient to create a joint-employer relationship.

New Standard Enunciated For the 30 years that preceded BFI, host companies avoided legal obligations to collectively bargain with represented subcontracted employees by forgoing their authority to exercise direct and immediate control over those employees. The proposition was simple and logical: an employer that does not directly set terms and conditions for employees is not required to collectively bargain those terms and conditions of employment.

Under the standard announced in BFI, the NLRB will define two or more entities as joint employers of a single work force if “they share or codetermine matters governing the essential terms or conditions of employment.” In determining whether a company satisfies this burden, the NLRB will evaluate whether: (1) a common-law employment relationship exists; and (2) the putative joint employer possesses sufficient control over employees’ essential terms and conditions of employment to permit meaningful collective bargaining.

Relevant factors the NLRB will consider include the ability to:

  • Hire, fire, discipline, supervise and direct employees
  • Set wages, hours, schedules, seniority and overtime
  • Assign work and determine the manner and method of work performance

Critically, a company must only possess and does not have to exercise these abilities to be a
joint employer.

While the NLRB emphasized that this standard requires a case-by-case, fact-intensive inquiry, the analysis performed in BFI provides some insight into how the NLRB will scrutinize this criteria. There, BFI contracted with Leadpoint Business Services (“Leadpoint”) to supply approximately 60 employees to a recycling plant.

During the representation proceedings before the NLRB, BFI argued that Leadpoint constituted the sole and proper employer of its employees. The NLRB rejected BFI’s argument, finding a joint-employer relationship based on the following:

  • Hiring
    While BFI never directly participated in Leadpoint’s hiring process, it developed hiring criteria that Leadpoint used when evaluating potential employees. For example, BFI mandated that Leadpoint employees (like BFI employees) undergo drug testing and certain job-related training.
  • Discipline/Firing
    BFI retained the right to “discontinue the use of any [Leadpoint] personnel” assigned to BFI. BFI never directly disciplined Leadpoint employees and lacked control to terminate their employment. Rather, BFI controlled a level of authority over which employees worked at its facility.
  • Supervision/Direction of Work
    BFI set specific productivity standards for both Leadpoint and BFI employees. The company also assigned specific tasks for Leadpoint to complete. Leadpoint managers oversaw its employees, determined the staffing and methods for completing those standards, and maintained day-to-day oversight of its employees.
  • Wages and Hours
    BFI determined the number of workers necessary for particular jobs, set shift times for Leadpoint to staff, and determined if overtime was necessary. Leadpoint established its employees’ pay rates and administered payroll, but BFI prevented Leadpoint from paying its employees more than BFI employees who performed comparable work.

Practical Concerns for Employers As articulated by the dissenting Board Members in BFI, the new standard presents a host of issues for employers that could destabilize existing bargaining relationships and complicate new ones.

First, the standard expands the definition of joint employer to such a degree that an incalculable number of companies now fall under its ambit, including, for example:

  • Insurance companies that require employers to take certain actions with employees in order to comply with policy requirements for safety, security, health, etc.
  • Franchisors
  • Banks or other lenders whose financing terms may require certain performance measurements
  • Any company that negotiates specific quality or product requirements
  • Any company that grants access to its facilities for a contractor to perform services there, and then continuously regulates the contractor’s access to the property for the duration of the contract
  • Any company that is concerned about the quality of the contracted services
  • Consumers or small businesses who dictate times, manner, and some method of performance of contractors

By widening this net, the Board has increased the number of companies susceptible to union organizing efforts, and the bargaining obligations that apply if their employees ultimately unionize.

However, it is entirely unclear how the NLRB will define the scope of the bargaining unit. For example, will a cleaning company’s employee fall under one of dozens of collective bargaining agreements depending on where he or she reports to work for the day, or the shift, or the part of the shift?

Second, contract negotiations will become exponentially more complicated as the secondary joint employer and the union will have widely divergent interests.

Third, because the “host” company and the contractor are considered joint employers, both will be required to engage in collective bargaining. Uncertainty and conflict between the companies is inevitable when deciding which is responsible for bargaining a given issue or which company prevails in the event of differing opinions over contract terms.

Additionally, questions will arise as to what confidential information companies must share with unions and their “joint employer” partners. This will no doubt impact negotiations over services agreements between the two companies themselves.

Fourth, formerly neutral “host” companies enjoyed protections from secondary picketing and boycotts that will no longer apply as they become primary employers under this expanded definition.

Fifth, the new standard will complicate asset and stock purchases and deter potential purchasers from taking over failing businesses. As the dissent in BFI explained, successor employers will lack the ability to terminate or rebid client and services contracts, eliminating a common practice by purchasers for reducing historic expenditures.

These concerns are just a few of the practical, detrimental consequences of the BFI decision raised by the dissenting NLRB Members. Perhaps of more concern, these are the consequences that are easily identifiable. Time will tell what unforeseen and unintended consequences result from this landmark decision.

Of course, numerous legal challenges are expected. But even if those challenges are successful in overturning BFI, the NLRB’s new joint-employer standard will still likely apply for years.


Client Alert 2015-243